Merit-Based College Scholarships and Car Sales

Abstract

Since the early 1990s, state governments have distributed billions of dollars in financial aid through merit-based college scholarships, most of which have no means tests. The model for most of these programs is Georgia's Helping Outstanding Pupils Educationally (HOPE) scholarship. Given the high correlation between precollege academic achievement and family income, the program characteristics raise the question: to what extent are HOPE disbursements simply rent payments to households otherwise inclined to send their children to college? This article addresses the rent question by examining the effect of HOPE on automobile consumption. The relatively swift passage of the lottery law and establishment of the program created an unanticipated windfall large enough to encourage the financing of consumer durables purchases, such as automobiles, out of household savings targeted for college. First, we compare car registrations in Georgia with those in sets of control group states before and after HOPE. We do not find a statistically significant overall HOPE effect, but allowing the HOPE coefficient to vary by year reveals statistically significant percentage increases in registered vehicles in 1994 and 1995, when the program's income cap was raised and then removed. Next, we examine the relationship between car registrations and HOPE recipients by county. Our results indicate that the number of HOPE recipients attending degree-granting institutions increases car registrations in counties above the 75th percentile in per capita income; there is no evidence of a relationship in counties below the 25th per capita income percentile.